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Fintech: Overview of Financial Regulators and
Recent Policy Approaches
April 28, 2020
Congressional Research Service
https://crsreports.congress.gov
R46333
Congressional Research Service
SUMMARY
Fintech: Overview of Financial Regulators and Recent Policy Approaches New technologies in the financial services sector can create challenges for the various federal
agencies responsible for financial regulation in the United States. As these regulators address the
potential benefits and risks of innovation, policymakers have demonstrated significant interest in
understanding the types of technologies that may benefit consumers and financial markets while
identifying the risks that new financial services may present. As Congress considers the potential
tradeoffs of financial technology or fintech, it can be useful to understand how the financial
system regulators are approaching these issues.
The financial system regulators can be grouped into three general categories: (1) depository institution regulators, (2)
consumer protection agencies, and (3) securities regulators. Each type of regulator has the authority to write rules, publish
guidance, supervise institutions, and enforce compliance with the laws they implement. Further, there are similarities and
differences among each regulator’s mandate, which shed light on the approaches the regulators tend to take when considering
new fintech.
The banking regulators generally are responsible for banks and credit unions, particularly focusing on the safety and
soundness of these institutions. They have limited authority to write rules for, supervise the operations of, or enforce actions
against firms outside their jurisdiction. Some banking regulators are responsible for granting licenses, or charters, to financial
institutions so they can operate as banks and credit unions. Fintech firms typically are not licensed banks or credit unions;
however, banks and credit unions often form partnerships with fintech firms, and banking regulators have legal authority to
examine these types of relationships. This third-party partnership supervision allows the regulators to supervise depository
institutions’ interactions with new fintech firms. Banks and credit unions also have an important role in the payments system.
Banking regulators have used some of their rulemaking authorities to influence technological advances in the payments
system as consumers continue to shift toward electronic payment tools, such as debit and credit cards.
The consumer protection agencies generally are responsible for protecting consumers from unfair and deceptive business
activities while maintaining a fair, competitive marketplace. Similar to banking regulators, consumer protection agencies
have rulemaking, supervision, and enforcement authorities to implement and ensure industry compliance with consumer
protection and competition laws, but consumer protection agencies have broader jurisdiction than banking regulators. For
example, often they can directly regulate fintech companies and use their enforcement authorities to interact with fintech. In
addition, they have promulgated rules pertaining to aspects of fintech. Consumer protection agencies generally balance the
potential benefits of new technologies that could improve consumer outcomes with the potential risks to consumers posed by
new, untested products entering the marketplace. This mandate allows consumer protection agencies to take enforcement
actions to protect consumers and create safeguards from enforcement actions to protect companies offering financial services
that benefit consumers or the market.
Securities regulators generally are concerned with protecting investors, maintaining fair and efficient markets, and facilitating
capital formation. These regulators generally have limited concern for safety and soundness of the firms in their jurisdiction,
focusing on disclosure requirements and contracts to promote investor protection and efficiency in the marketplace. Similar
to the other regulators, they promulgate and enforce rules, but their mandate positions them somewhat differently than
banking regulators and consumer protection agencies with respect to fintech. Securities regulators may endeavor to determine
whether a new type of fintech product from a company counts as a security and how fintech is changing the way securities
are offered. To this end, securities regulators tend to rely on their enforcement authority to ensure that new technologies do
not violate securities laws.
R46333
April 28, 2020
Andrew P. Scott Analyst in Financial Economics
Fintech: Overview of Financial Regulators and Recent Policy Approaches
Congressional Research Service
Contents
Introduction ..................................................................................................................................... 1
Banking Regulators: Approach to Fintech....................................................................................... 3
Partnerships with Technology Service Providers ...................................................................... 4 Updated Guidance on Bank Partnerships with Technology Service Providers................... 4
Brokered Deposits with Technology-Based Tools .................................................................... 5 FDIC Proposed Rulemaking on Brokered Deposits ........................................................... 5
Regulatory Sandboxes ............................................................................................................... 6 OCC Proposed Innovation Pilot Program ........................................................................... 6
Bank Charters for Fintech Companies ...................................................................................... 7 OCC Special Purpose National Bank Charters for Fintech Companies ............................. 8 Industrial Loan Company Charters and the FDIC .............................................................. 8
Consumer Protection and Payments Innovation ....................................................................... 9 Federal Reserve FedNow Service ..................................................................................... 10
Outreach Offices for Stakeholders ........................................................................................... 11 Federal Reserve Innovation Program ................................................................................. 11 OCC Office of Innovation.................................................................................................. 11 FDIC Tech Lab................................................................................................................... 11
Consumer Protection Agencies: Approach to Fintech ................................................................... 12
Enforcement Actions to Ensure Consumer Protection ............................................................ 13 FTC Fintech Enforcement Actions ................................................................................... 13
Sandboxes and No-Action Letters to Promote Innovation ...................................................... 14 CFPB No-Action Letter Policy ......................................................................................... 15 CFPB Compliance Assistance and Revised Trial Disclosure Sandbox Policies ............... 15
Outreach, Coordination, and Research Programs ................................................................... 15 CFPB Office of Innovation ............................................................................................... 15 CFPB American Consumer Financial Innovation Network .............................................. 16 FTC Investigation of Fintech Issues ................................................................................. 16
Securities Regulators: Approach to Fintech .................................................................................. 17
Application of Existing Securities Rules to Fintech ............................................................... 18 SEC Guidance for Initial Coin Offerings .......................................................................... 19 SEC Crowdfunding Final Rule ......................................................................................... 19 SEC Guidance for Automated Investment Advice ............................................................ 19 SEC and CFTC Digital Asset Enforcement Actions and No-Action Letters .................... 19
Outreach Offices for Stakeholders .......................................................................................... 20 SEC Strategic Hub for Innovation and Financial Technology .......................................... 20 LabCFTC .......................................................................................................................... 20
Tables
Table 1. Relevant Federal Financial System Regulators ................................................................. 2
Table 2. Examples of FTC Fintech Enforcement Actions ............................................................. 14
Table A-1. Depository Charters and Regulators ............................................................................ 21
Table B-1. Financial Innovation Offices ....................................................................................... 24
Fintech: Overview of Financial Regulators and Recent Policy Approaches
Congressional Research Service
Table C-1. Federal Reserve System Financial Innovation Programs ............................................ 25
Table C-2. OCC Responsible Innovation Framework ................................................................... 27
Table C-3. CFPB Fintech Policies and Programs .......................................................................... 28
Table D-1. Payments Regulations Implemented by Financial Regulators .................................... 30
Table D-2. Federal Reserve Payments Programs .......................................................................... 31
Appendixes
Appendix A. Summary of Financial Regulator Mandates ............................................................. 21
Appendix B. Financial Innovation Offices .................................................................................... 24
Appendix C. Select Regulatory Fintech Initiatives ....................................................................... 25
Appendix D. Payments Regulation and Programs ........................................................................ 30
Appendix E. CRS Fintech Products .............................................................................................. 33
Contacts
Author Information ........................................................................................................................ 34
Fintech: Overview of Financial Regulators and Recent Policy Approaches
Congressional Research Service 1
Introduction Swiping a card to pay for something seems routine today; however, at one point in recent history,
a piece of plastic with a magnetic strip capable of electronically communicating payment
information between the banks of a consumer and a merchant was completely unprecedented.
Financial technology, or fintech, refers to the broad subset of financial innovations that apply new
technologies to a financial service or product. Although the term was coined only recently, it
likely would have been applied to a broad set of innovations, such as the advent of automated
teller machines, or ATMs, in the 1960s and mobile payments in the 2000s.1 There is no singular
definition of fintech, often making policy discussions around this topic complicated. Further, U.S.
financial system regulation is fragmented across many regulators by industry, business practice,
and geographical jurisdiction, so regulating fintech is multifaceted.
Each financial regulator has a different mandate, creating gaps and overlaps among their
jurisdictions. Regulators have used various policy tools to approach the new technologies in a
manner consistent with their mandate, which impacts both institutions under their direct
jurisdiction and new firms that do not cleanly fit under one regulator’s jurisdiction.
Recent congressional interest in fintech has led to several hearings, the creation of fintech task
forces, and legislation pertaining to one or multiple financial system regulators. This report
examines activities and proposals initiated after the enactment of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank; P.L. 111-203) that are relevant to fintech.
These can include fintech actions as defined by a regulator or actions pertaining to areas of
financial services that intersect with technology but may not be explicitly considered fintech.2
Financial regulators generally fall into three groups, which are responsible for (1) depository
institutions, (2) consumer protection, and (3) securities. Their approaches may include the
following:
writing new rules or amending existing ones;
issuing guidance to clarify the applications of the rules to new types of business
lines;
creating new types of charters for institutions;
using supervisory authorities to examine partnerships between regulated and
unregulated entities;
issuing enforcement actions to companies that violate regulations or laws; or
establishing new offices and staffing experts to serve as outreach points-of-
contact for relevant industry concerns.
Table 1 summarizes the federal regulators discussed in this report, including their scope, and
relevant authorities.3 The depository institution regulators discussed in this report include the
1 The discussion of regulatory activities in this report will rely on the agency’s interpretation of what counts as financial
technology (fintech). For example, this report will include an agency that has established a financial innovation office
or a program with an explicit mission of addressing fintech.
2 For instance, banking regulators typically will issue guidance for supervising third-party service providers, which may
include technology service providers. The selected issues presented in this report are not meant to represent the entire
body of issues that could pertain to fintech.
3 Some agencies and bureaus that are not financial regulators but have an interest in fintech are not the focus of this
report. For example, the Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of the
Fintech: Overview of Financial Regulators and Recent Policy Approaches
Congressional Research Service 2
Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Federal Deposit
Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA)—these
are referred to as banking regulators. The consumer protection agencies include the Consumer
Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC). The securities
regulators include the Securities and Exchange Commission (SEC) and the Commodity Futures
Trade Commission (CFTC). More information on the mandates and relevant authorities of these
regulators can be found in Appendix A.
Table 1. Relevant Federal Financial System Regulators
Regulatory Agency Scope of Regulation Relevant Authorities
Depository Institutions
Board of Governors of the Federal
Reserve System (Federal Reserve)
Holding companies for banks,
financial companies, securities
companies, and other financial
institutions; banks chartered at the
state level that are members of the
Federal Reserve System; foreign
banking organizations; systemic
payment systems and financial
institutions
Prudential regulator for state
member banks. Operates the
payment system; governs federal
reserve bank lending to depository
institutions
Office of the Comptroller of the
Currency (OCC)
National banks, federal branches of
foreign banks, and federally
chartered thrift institutions
Prudential regulator for national
banks. Charters national banks and
special purpose banks
Federal Deposit Insurance
Corporation (FDIC)
Federally insured depository
institutions and state-chartered banks that are not members of the
Federal Reserve System
Prudential regulator for state
nonmember banks; deposit insurer for national and state chartered
banks; receivership and resolution
authority for failing banks.
Supervises industrial loan
companies and industrial banks
National Credit Union
Administration (NCUA)
Federally chartered credit unions Provides oversight over federal
credit union system; examines
credit unions for safety and
soundness; insures federal credit
unions
Consumer Protection
Consumer Financial Protection
Bureau (CFPB)
Banks and nonbanks offering
consumer financial products; nonbank mortgage-related firms;
private student lenders; payday
lenders; larger “consumer financial
entities” determined by the CFPB
Rulemaking authority for consumer
protection for all banks; supervisory authority for banks with over $10
billion in assets and large, nonbank
entities
Treasury responsible for implementing provisions of the Bank Secrecy Act, the main anti-money laundering law in the
United States. While FinCEN has some fintech programs, anti-money laundering is beyond the scope of this report.
Brief mentions of the FinCEN’s fintech work can be found in Appendix A and Appendix D. For more on anti-money
laundering and FinCEN, see CRS In Focus IF11061, Targeting Illicit Finance: The Financial Crimes Enforcement
Network’s “Financial Institution Advisory Program,” by Liana W. Rosen and Rena S. Miller.
Fintech: Overview of Financial Regulators and Recent Policy Approaches
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Regulatory Agency Scope of Regulation Relevant Authorities
Federal Trade Commission (FTC) Commercial business practices Consumer protection and
competition authority for over 70
laws, including financial system data
security laws
Securities Markets
Securities and Exchange
Commission (SEC)
Securities exchanges; broker-
dealers; clearing and settlement
agencies; investment funds; mutual
funds; investment advisers; hedge funds with assets over $150 million;
investment companies; security-
swap dealers; corporations selling
securities to the public
Enforcement and rulemaking
authority for activities and entities
in its jurisdiction, specifically
primary market security offerings. Approves rulemakings by self-
regulated organizations
Commodity Futures Trading
Commission (CFTC)
Futures exchanges and futures
commission merchants; commodity
pool operators and commodity
trading advisors; derivatives;
clearing organizations; designated
contract markets, swap dealers, and
major swap market participants
Rulemaking and enforcement
authority for entities in its
jurisdiction
Source: Congressional Research Service (CRS).
Note: For a similar table that expands on the financial regulatory framework, see CRS Report R44918, Who
Regulates Whom? An Overview of the U.S. Financial Regulatory Framework, by Marc Labonte.
Banking Regulators: Approach to Fintech The banking regulators—the Federal Reserve, FDIC, OCC, and NCUA—face particular fintech-
related challenges regarding how to ensure banks and credit unions can efficiently and safely
interact with nonbank fintech companies.4 Sometimes fintech companies partner with and offer
services to banks or credit unions. Other times, they seek to compete with banks by offering bank
or bank-like services directly to customers. In some circumstances, banks themselves can develop
their own fintech.
Given their broad responsibilities, banking regulators can engage with and respond to fintech in
numerous ways, including by
amending rules and issuing guidance to clarify how rules apply to new products;
supervising the relationship banks form with fintech companies;
granting banking licenses to fintech companies; and
conducting outreach with new types of firms to facilitate communication between
industry and regulators.
Examples of these regulatory actions are discussed in more detail below. Each of the agencies has
slightly different regulatory scope, so the efforts described in the sections below reflect each
regulator’s interest in balancing the risks and benefits of financial technologies.
4 The Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency
(OCC) comprise the federal banking regulators. The National Credit Union Administration (NCUA) regulates federal
credit unions. These four agencies are collectively the federal banking regulators.
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Partnerships with Technology Service Providers
In general, banking regulators have not been active in issuing fintech-specific rules in the last 10
years. Instead, regulators have focused more heavily on issuing guidance on how new products
and new relationships fit into the current regulatory framework. Relationships between banks and
technology service providers (TSPs)—third-party partnerships—are particularly relevant because
many TSPs are fintech companies. Banking regulators use their authority to examine the
operations of these third-party partnerships as a critical tool to supervise the interactions between
banks and nonbank technology firms. Further, third-party supervision demonstrates how
regulators have used and applied the existing framework to fintech activities.
Banks and Third-Party Vendor Relationships
As more banking transactions are delivered through digital channels, banks and credit unions that lack the in-house
expertise to set up and maintain these technologies are increasingly relying on third-party vendors, specifically
technology service providers (TSPs), to provide software and technical support. In light of banks’ growing reliance
on TSPs, regulators are scrutinizing how banks manage their operational risks, defined as the risks of loss related to
failed internal controls, people, and systems, or from external events.5 Rising operational risks—specifically cyber
risks (e.g., data breaches, insufficient customer data backups, and operating system hijackings)—have compelled
regulators to scrutinize banks’ security programs aimed at mitigating operational risks. Regulators require an
institution that chooses to use a TSP to ensure that the TSP performs in a safe and sound manner, and activities
performed by a TSP for a bank must meet the same regulatory requirements as if they were performed by the
bank itself.
Regulation aimed at banks’ relationships with third-party vendors such as TSPs may be useful in mitigating
operational risks but imposes costs on banks that want to utilize available technologies. Banks, particularly
community banks and small credit unions, may find it difficult to comply with regulator standards applicable to
third-party vendors. For example, certain institutions may lack sufficient expertise to conduct appropriate
diligence when selecting TSPs or structure contracts that adequately protect against the risks TSPs may present.
Some banks may also lack the resources to monitor whether the TSPs are adhering to the Gramm-Leach-Bliley
Act (P.L. 106-102) and other regulatory or contract requirements. In addition, regulatory compliance costs are
sometimes cited as a factor in banking industry consolidation, because compliance costs may be subject to
economies of scale that incentivize small banks to merge with larger banks or other small banks to combine their
resources to meet their compliance obligations.
Notes: For more information on TSPs and banking industry consolidation, see CRS In Focus IF10935, Technology
Service Providers for Banks, by Darryl E. Getter; CRS Report R45518, Banking Policy Issues in the 116th Congress,
coordinated by David W. Perkins; CRS Insight IN11062, BB&T and SunTrust: The Latest Proposed Merger in a Long-
Term Trend of Banking Industry Consolidation, by David W. Perkins; and CRS Report R46332, Fintech: Overview of
Innovative Financial Technology and Selected Policy Issues, coordinated by David W. Perkins.
Updated Guidance on Bank Partnerships with Technology Service Providers
From a banking regulator’s standpoint, an institution can be a bank, a nonbank, or a nonbank that
partners with a bank. Bank regulators have jurisdiction over banks and their partnerships with
nonbanks. Some insured depository institutions opt to partner with TSPs to receive software and
technical support. Often, banks will use TSPs to support critical business needs, such as core
processing, loan servicing, accounting, or data management—areas where fintech companies
have become active market participants. As banks increasingly rely on TSP partnerships,
regulators are becoming increasingly interested in how banks manage the risks associated with
these partnerships.6
5 See Basel Committee on Banking Supervision, Principles for the Sound Management of Operational Risk, June 2011,
at https://www.bis.org/publ/bcbs195.pdf.
6 For more on these relationships, see CRS Report R46332, Fintech: Overview of Innovative Financial Technology and
Fintech: Overview of Financial Regulators and Recent Policy Approaches
Congressional Research Service 5
Banking regulators require a financial institution that chooses to partner with a TSP to ensure that
the activities performed by the TSP for the institution meet the same regulatory requirements as if
they were performed by the bank itself. Banking regulators’ broad set of authorities to supervise
TSPs are provided by the Bank Service Company Act (BSCA; P.L.87-856). Specifically, the
BSCA provides banking regulators with authority to examine and regulate third-party vendors
that provide services to banks.
The banking regulators periodically issue and update guidance pertaining to third-party vendors.7
They issued interagency guidelines in 2001 that, among other things, require banks to provide
continuous oversight of third-party vendors such as TSPs to ensure they maintain appropriate
security measures. In 2017, the FDIC’s Office of Inspector General issued an evaluation of TSP
contracts, noting that many of the sampled institutional relationships did not adequately address
the risks associated with TSP partnerships.8 In 2019, the FDIC issued a financial institution letter
on TSP contracts, outlining the statutory obligations of firms pursuant to the BSCA and the
Gramm-Leach-Bliley Act (P.L. 106-102) and encouraging financial institutions to ensure service
provider contracts adequately address business continuity and incident response risks.9
Brokered Deposits with Technology-Based Tools
Rulemaking with a specific focus on fintech companies is relatively infrequent, but banking
regulators occasionally issue rules or proposed rules that have some tangential impact on fintech
companies, such as a recently proposed FDIC rule on brokered deposits.10 This proposed rule is
another example of how regulators have used an existing regulatory framework to potentially
accommodate fintech developments.
FDIC Proposed Rulemaking on Brokered Deposits
Generally, banks hold two types of deposits: core deposits and brokered deposits. Core deposits
are funds individuals or companies directly place in checking and savings accounts, whereas
brokered deposits are funds that a third-party broker places in a bank on behalf of a client,
typically to maximize interest earned and possibly to ensure that the accounts are covered by the
FDIC’s $250,000 insurance limit.11 Brokered deposits are considered less stable than core
deposits, as the former is typically moved around frequently depending on market conditions. If a
bank is not considered well-capitalized by its regulator, the regulator can prohibit the bank from
accepting brokered deposits.
Selected Policy Issues, coordinated by David W. Perkins; and CRS In Focus IF10935, Technology Service Providers
for Banks, by Darryl E. Getter.
7 For example, see FDIC, Guidance for Managing Third-Party Risk, FIL-44-2008, June 6, 2008; Federal Financial
Institutions Examination Council, “Financial Regulators Release Guidance for the Supervision of Technology Service
Providers,” press release, October 31, 2012, at https://www.ffiec.gov/press/pr103112.htm; FDIC, Technology
Outsourcing: Informational Tools for Community Bankers, FIL-13-2014, April 7, 2014; and FDIC, Office of Inspector
General, Office of Audits and Evaluations, Technology Service Provider Contracts with FDIC-Supervised Institutions,
Report No. EVAL-17-004, February 2017.
8 FDIC, Office of Inspector General, “OIG Issues Report on FDIC-Supervised Institutions’ Contracts with Technology
Service Providers,” March 28, 2017, at https://www.fdicoig.gov/report-release/oig-issues-report-fdic-supervised-
institutions%E2%80%99-contracts-technology-service.
9 FDIC, Technology Service Provider Contracts, FIL-19-2019, April 2, 2019.
10 FDIC, “Unsafe and Unsound Banking Practices: Brokered Deposits,” 85 Federal Register 7453, 2020.
11 CRS Insight IN11209, FDIC Proposes Changes to Brokered Deposit Regulation, by David W. Perkins.
Fintech: Overview of Financial Regulators and Recent Policy Approaches
Congressional Research Service 6
Consumers increasingly use nonbank technology-based tools, such as mobile phones and fintech
apps, to move money between accounts. Under certain circumstances, rules against accepting
brokered deposits could apply to money transfers using nonbank technologies. The FDIC,
responding to concerns that regulators have applied the rules too broadly, published a notice of
proposed rulemaking in December 2019 that would allow deposits to enter the banking system
through new technological channels without being subject to brokered deposit rules.12
Regulatory Sandboxes
Regulators occasionally create programs through which firms can experiment with new products
in a way that allows industry and regulators to better understand how new technologies can
impact consumers and the market. These programs are sometimes referred to as sandboxes or
greenhouses. As a state-level example, Arizona created such a program in March 2018.13 At the
federal level, these programs are being discussed but have not fully taken shape. Among the
banking regulators, the OCC has proposed a regulatory sandbox program, discussed below.
OCC Proposed Innovation Pilot Program
In April 2019, the OCC proposed a voluntary Innovation Pilot Program to support the testing of
innovative products, services, and processes that could significantly benefit consumers,
businesses, and communities, including those that could promote financial inclusion—the OCC is
considering public comments on the program as of the date of this report.14 This proposed
program is similar to the concept of a regulatory sandbox or greenhouse, which is discussed in the
“Sandboxes and No-Action Letters to Promote Innovation” section, below.15 Some key
characteristics and considerations of the proposed program include the following:
The pilot would be open to banks, their subsidiaries, and federal branches and
agencies, including those partnering with third parties to offer innovative
products, services, or processes. It would also be open to banks working together,
such as in a consortium or utility.
The OCC is considering a suite of regulatory tools during the pilot to
communicate with banks, including interpretive letters, supervisory feedback,
and technical assistance from OCC subject-matter experts—the tools would not
include statutory or regulatory waivers.
The OCC may address the legal permissibility of a product or service that a bank
proposes to test as part of the program. The OCC would expect banks to address
risks to consumers and would not permit into the program proposals that have
potentially predatory, unfair, or deceptive features.
12 FDIC, Unsafe and Unsound Banking Practices: Brokered Deposits Restrictions, December 12, 2019, at
https://www.fdic.gov/news/board/2019/2019-12-12-notice-dis-b-fr.pdf. For more information, see Jelena McWilliams,
“On Brokered Deposits in the Fintech Age,” keynote remarks at the Brookings Institution, Washington, DC, December
11, 2019, at https://www.fdic.gov/news/news/speeches/spdec1119.html.
13 Arizona Attorney General Mark Brnovich, “Arizona Becomes First State in U.S. to Offer Fintech Regulatory
Sandbox,” press release, March 22, 2018, at https://www.azag.gov/press-release/arizona-becomes-first-state-us-offer-
fintech-regulatory-sandbox.
14 OCC, “OCC Innovation Pilot Program,” April 2019, at https://www.occ.treas.gov/topics/supervision-and-
examination/responsible-innovation/occ-innovation-pilot-program.pdf.
15 The concept of a regulatory sandbox or greenhouse is considered further in CRS In Focus IF10513, Financial
Innovation: “Fintech,” by David W. Perkins.
Fintech: Overview of Financial Regulators and Recent Policy Approaches
Congressional Research Service 7
Bank Charters for Fintech Companies
One foundational way banking regulators can regulate institutions not traditionally covered by
banking regulations, such as fintech companies, is to grant a banking license to a new type of
firm. By doing this, the institution becomes covered by the regulatory framework that applies to
other depository institutions, and the regulator can apply a similar supervisory framework to the
new institution’s operations. The OCC and FDIC recently have taken measures to consider
charters for nonbank companies. The OCC’s efforts are specifically targeted to fintech
companies, and the FDIC’s efforts could affect a fintech company’s opportunity to become a
chartered bank.
Fintech and Banking Services
Fintech is generally enabled by advances in general-use technologies that are used to perform financial activities.
The proliferation of online financial services has a number of broad implications. One consideration is that online
companies can often quickly grow to a significant size shortly after entering a financial market.16 This could
facilitate the rapid growth of small fintech startups, possibly through capturing market share from incumbent
financial firms. Adaption of information technology, however, may require significant investment, which could
advantage existing firms if they have increased access to capital. In addition, larger technology firms—including
Amazon, Facebook, Apple, and Google—have started financial services operations, and thus may become
competitors to or partners with traditional financial institutions. Some industry experts predict that platforms
offering the ability to engage with different financial institutions from a single channel will likely become the
dominant model for delivering financial services.17 These developments may raise concerns that offering finance
through digital channels could drive industry concentration.
Another consideration in this area involves consumer disclosures for financial products. In the past, voluntary or
mandatory disclosures were designed to be delivered through paper. As firms move more of their processes
online, they have begun to update these disclosures with electronic formats in mind. Consumers may interact
differently with mobile or online disclosures than paper disclosures. Accordingly, firms may need to design online
disclosures differently than paper disclosures to communicate the same level of information to consumers.
The internet raises questions over what role geography-based financial regulations should play in the future. Many
financial regulations are applied to companies and activities based on geographic considerations, as most areas of
finance are subject to a dual federal-state regulatory system. For example, nonbank lenders and money
transmitters are primarily regulated at the state level in each state in which they operate and are subject to those
states’ consumer-protection laws.18 Fintech proponents argue the internet facilitates the provision of products and
services on a national scale, and 50 separate state regulatory regimes are inefficient when applied to internet-
based businesses that are not constrained by geography.19 However, state regulators and consumer advocates
assert state regulators’ experiences and local connections are best situated to regulate nonbank fintechs.20
Note: See CRS Report R46332, Fintech: Overview of Innovative Financial Technology and Selected Policy Issues,
coordinated by David W. Perkins.
16 Itay Goldstein and Andrew Karolyi, “Fintech: What’s Real, and What’s Hype,” Knowledge@Wharton, March 12,
2019, at https://knowledge.wharton.upenn.edu/article/fintech.
17 For example, World Economic Forum, Beyond Fintech: A Pragmatic Assessment Of Disruptive Potential In
Financial Services, August 2017, at http://www3.weforum.org/docs/Beyond_Fintech_-
_A_Pragmatic_Assessment_of_Disruptive_Potential_in_Financial_Services.pdf.
18 Conference of State Bank Supervisors, “Chapter 2: Overview of Nonbank Supervision,” in Reengineering Nonbank
Supervision, August 2019, pp. 3-9, at https://www.csbs.org/csbs-white-paper-reengineering-nonbank-supervision.
19 Brian Knight, Modernizing Financial Technology Regulations to Facilitate a National Market, Mercatus Center at
George Mason University, Mercatus on Policy, July 2017, at https://www.mercatus.org/publications/financial-markets/
modernizing-financial-technology-regulations-facilitate-national.
20 Testimony of Charles Clark, Director of Washington Department of Financial Institutions, before U.S. Congress,
House Committee on Financial Services, Taskforce on Financial Technology, Overseeing the Fintech Revolution:
Domestic and International Perspectives on Fintech Regulation, 116th Cong., 1st sess., June 25, 2019.
Fintech: Overview of Financial Regulators and Recent Policy Approaches
Congressional Research Service 8
OCC Special Purpose National Bank Charters for Fintech Companies
Many nonbank financial companies are licensed at the state level. Thus, a fintech company
wanting to do business across the United States would need to obtain 50 different state licenses
and meet a complex set of 50 state regulations and standards in order to do so. In response to
concerns about this complexity, the OCC requested comments in 2016 on a proposal to offer
national bank charters to fintech companies.21 In 2018, it announced that it would begin offering
charters to fintech companies.22
The OCC’s charter initiative has been controversial. State regulators and consumer advocates
have argued that granting such charters would inappropriately allow federal preemption of
important state-level consumer protections, and that the OCC does not have the authority to grant
bank charters to these types of companies. State regulators have filed lawsuits, and the matter is
the subject of ongoing legal proceedings.23
Industrial Loan Company Charters and the FDIC24
In addition to traditional bank charters, several states offer a type of bank charter for industrial
loan companies (ILCs). Recently, fintech firms have begun to explore these types of charters.
ILCs chartered in some states are allowed to accept certain types of deposits if the FDIC has
approved the ILC for deposit insurance. Given this condition, the FDIC is considering whether or
not to grant deposit insurance to fintech firms; doing so would allow ILCs to operate, under
certain state charters, what would be in effect full-service, FDIC-insured banks. Several
technology-focused companies have applied to establish new ILCs.
ILCs are regulated in two unique ways, which make them both attractive and controversial to
certain fintech companies seeking to have deposit-taking bank operations:
ILCs can be owned by a nonfinancial parent company, creating an avenue for
commercial firms, such as fintech companies, to own a bank. Critics of ILCs
argue this runs counter to the long-standing U.S. policy of separating banking
and commerce.
In some circumstances, these parent companies are not considered a bank-
holding company; therefore a fintech company owning a bank as a nonfinancial
parent company might not be subject to supervision by the Federal Reserve,
pursuant to the Bank Holding Company Act of 1956 (BHCA; P.L. 84-511).
Critics argue this would result in under regulation of an ILC parent company.
In response to concerns over ILCs, the FDIC and Congress have in the past implemented
moratoriums on approving FDIC-insurance for new ILCs.25 No new ILC charters have been
granted since the end of the most recent moratorium in 2013, prompting ILC proponents to argue
21 OCC, Exploring Special Purpose National Bank Charters for Fintech Companies, December 2016, at
https://www.occ.gov/publications-and-resources/publications/banker-education/files/pub-special-purpose-nat-bank-
charters-fintech.pdf.
22 OCC, “OCC Begins Accepting National Bank Charter Applications From Financial Technology Companies,” press
release, July 31, 2018, at https://www.occ.gov/news-issuances/news-releases/2018/nr-occ-2018-74.html.
23 See CRS Legal Sidebar LSB10381, Court Battle for Fintech Bank Charters to Continue, by M. Maureen Murphy.
24 For more on Industrial Loan Companies (ILCs), see CRS In Focus IF11374, Industrial Loan Companies and Fintech
in Banking, by David W. Perkins.
25 FDIC, “Moratorium on Certain Industrial Loan Company Applications and Notices,” 71 Federal Register 43482,
2006; Section 603 of Dodd-Frank (P.L. 111-203) also imposed a three-year moratorium on the FDIC’s ability to grant
deposit insurance to ILCs.
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an unofficial moratorium is in effect without regulatory or statutory basis. By applying to
establish new ILCs, technology companies have renewed public interest in ILCs in general. If the
FDIC generally begins granting deposit insurance to ILCs, this could create a path for
nontraditional banking companies beyond fintechs to offer bank services.
FDIC Notice of Proposed Rulemaking on Parent Companies of Industrial Banks
and Industrial Loan Companies
The BHCA establishes the terms and conditions under which a company can own a bank in the
United States and grants the Federal Reserve the authority to regulate these holding companies. In
1987, Congress enacted the Competitive Equality Banking Act of 1987 (CEBA; P.L. 100-86) to
provide exemptions to permit certain financial and commercial companies to own and control
industrial banks without becoming a bank-holding company under the BHCA.26 In granting
deposit insurance for any insured depository institution, including industrial banks, the FDIC
must assess the safety and soundness of the proposed institution and the risk posed to the Deposit
Insurance Fund.27 Recent deposit insurance filings involving industrial banks have proposed
ownership and control structures that would not be subject to federal consolidated supervision.28
To codify and enhance the FDIC’s supervisory process with respect to these institutions, the
FDIC issued a notice of proposed rulemaking on March 31, 2020, which would require certain
conditions and commitments for agency approval of applications that would result in an insured
industrial bank or ILC becoming a subsidiary of a company that is not subject to supervision by
the Federal Reserve.29 The proposed rule would also require that the parent company and
industrial bank or ILC enter into one or more agreements with the FDIC.
Consumer Protection and Payments Innovation
Many regulators have expressed interest in developing programs that facilitate innovation.
Innovation can lead to new types of products for consumers, such as mobile payments, but it can
also create obstacles for consumers to manage. Banking regulators and other financial system
regulators, such as the Consumer Financial Protection Bureau (CFPB) (see “Consumer Protection
Agencies: Approach to Fintech”), implement and promulgate rules pertaining to the payments
system. (See Appendix D for these rules and other regulatory interests in payments innovation.)
The payments system provides a few examples where new technologies create the potential for
both benefits and risks to consumers.
26 The Competitive Equality Banking Act of 1987 (CEBA; P.L. 100-86) created explicit exemptions from the definition
of a “bank” under the Bank Holding Company Act of 1956 (BHCA; P.L. 84-511).
27 The primary purposes of the Deposit Insurance Fund (DIF) are to insure and protect the depositors of insured banks
and to resolve failed banks.
28 FDIC, Memorandum to the Board of Directors, “Notice of Proposed Rulemaking Parent Companies of Industrial
Banks and Industrial Loan Companies,” March 17, 2020, at https://www.fdic.gov/news/board/2020/2020-03-17-
notational-mem.pdf.
29 FDIC, “Parent Companies of Industrial Banks and Industrial Loan Companies,” 85 Federal Register 17771 (2020).
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Consumer Electronic Payments
Consumers have several options to make electronic, noncash transactions. For instance, consumers can make
purchases by swiping, inserting, or tapping a card to a payment terminal; they can store their preferred payment
information in a digital wallet; or they can use an app to scan a barcode on a mobile phone that links to a payment
of their choice. Merchants also enjoy electronic payments innovations that allow them to accept a range of
payment types while limiting the need to manage cash.30
Despite the technology surrounding noncash payments, electronic payment networks eventually run through the
banking system. Accessing these systems typically involves paying fees, which may be burdensome on certain
groups. For instance, most Americans have a bank account, but a 2017 survey found that almost a third of those
who left the banking system did so because of fees associated with their account.31 Although some services, such
as prepaid cards, allow individuals to make electronic payments without bank accounts, these options also often
involve fees. As a result, cash payments may be the most affordable payment option for certain groups.
Most businesses and consumers would benefit from the ability to receive funds more quickly, particularly as a
greater share of payments are made online or using mobile technology. A faster payment system may provide
certain other benefits for low-income or liquidity-constrained consumers (colloquially, those living “paycheck to
paycheck”) who may more often need access to their funds quickly. In particular, many lower-income consumers
say that they use alternative financial services, such as check cashing services and payday loans, because they need
immediate access to funds. Faster payments may also help some consumers avoid checking account overdraft fees.
Note, however, that some payments households make would also be cleared faster—debiting their accounts more
quickly—than they are in the current system, which could be harmful to some underserved households.
Note: See CRS Report R46332, Fintech: Overview of Innovative Financial Technology and Selected Policy Issues,
coordinated by David W. Perkins.
Federal Reserve FedNow Service
The Federal Reserve’s proposed FedNow Service payments initiative is one example of a
regulator facilitating a new product for consumers. The Federal Reserve operates or regulates
important elements of the payments and settlement system, including retail payment networks
such as the FedACH network, multilateral settlement services such as the National Settlement
Service, and real-time gross settlement systems such as Fedwire Funds Service.32 Recently, the
Federal Reserve announced plans to develop the FedNow Service: a real-time payments and
settlement system for peer-to-peer and business-to-consumer payments.33
The FedNow Service is expected to impact consumers as they continue to conduct commerce
using electronic payments, mobile phones, and apps. Transacting in this way can lead to better
outcomes for consumer budgeting, as transactions are settled in real time, but it also may impact a
consumer’s ability to resolve errors, as instantaneous payments are harder to stop or return. Given
the importance of safety in the payments system, the Federal Reserve and a private organization
called the Clearing House have both established real-time payments to create competition in the
30 For example, PayPal enables users to send and receive money via credit or debit card, directly through their bank, or
by using funds stored in their account. Square offers a mobile payment terminal that enables consumers to swipe or
insert a payment card. Further, cash can take longer to process at the point of sale (making change, counting coins,
etc.), presents a security risk (carrying cash in a register), and takes time to store (depositing cash reserves in a bank
account)—some of these issues are elucidated in Andy Newman, “Cash Might Be King, but They Don’t Care,” New
York Times, December 25, 2017, at https://www.nytimes.com/2017/12/25/nyregion/no-cash-money-cashless-credit-
debit-card.html.
31 FDIC, 2017 FDIC National Survey of Unbanked and Underbanked Households, October 2018, p. 4, at
https://www.fdic.gov/householdsurvey/2017/2017report.pdf.
32 For more information on these systems and the Federal Reserve’s role, see CRS Report R45927, U.S. Payment
System Policy Issues: Faster Payments and Innovation, by Cheryl R. Cooper, Marc Labonte, and David W. Perkins.
33 For more on FedNow, see https://www.federalreserve.gov/paymentsystems/fednow_about.htm.
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market for payments and settlement services, with the idea that competition will increase market
discipline and enhance resiliency in the system.34 The Federal Reserve anticipates the FedNow
Service will be available in 2023 or 2024.
Outreach Offices for Stakeholders
Each depository regulator has put together a working group or formal office to understand how
new technologies may affect institutions under their jurisdictions and to establish a point of
contact for industry. A summary of these efforts is presented below. Table B-1 in Appendix B
provides a synopsis of the offices established by each financial regulator discussed in this report,
and Appendix C summarizes other efforts, such as research programs, notable fintech
conferences, and working groups.
Federal Reserve Innovation Program
In December 2019, the Federal Reserve established a series of programs to support financial
innovation in the financial services marketplace.35 Part of this effort includes offering “office
hours” to supervised financial institutions and nonbank fintech firms looking for information
about financial innovation. These office hours are held at the various Federal Reserve Banks. The
Federal Reserve also established a new website, which contains information about related
supervisory information, regulatory guidance, staff speeches, publications, research, and events.
The Reserve Banks have created working groups to address fintech issues, which are summarized
in Appendix C.
OCC Office of Innovation
In 2015, the OCC began developing a “Responsible Innovation” framework to address issues of
financial services innovations. This framework is summarized in Table C-2 of Appendix C. As
part of the framework, the OCC created a group to meet with banks, fintech companies, consumer
groups, regulators, and other stakeholders to discuss various issues, concerns, and areas of
interest relevant to fintech.36 In 2017, the OCC formally established the Office of Innovation to
implement its Responsible Innovation framework and provide a central point of contact for
requests and information related to innovation.
FDIC Tech Lab
The FDIC recently has taken steps to establish fintech-specific programs. It created its own
version of an office of innovation, the FDIC Tech Lab, or “FDiTech,” in October 2018. The FDIC
Tech Lab is intended to promote, coordinate, and understand the role of new innovations among
technology firms, financial institutions, and other regulators.37 The Tech Lab’s stated goals are to
engage with financial and technology companies to identify opportunities to improve the safety
34 Federal Reserve Governor Lael Brainard, “The Digitalization of Payments and Currency: Some Issues for
Consideration,” February 5, 2020, at https://www.federalreserve.gov/newsevents/speech/brainard20200205a.htm.
35 Board of Governors of the Federal Reserve System, “Innovation,” December 17, 2019, at
https://www.federalreserve.gov/aboutthefed/innovation.htm.
36 OCC, “Recommendations and Decisions for Implementing a Responsible Framework,” October 2016, at
https://www.occ.treas.gov/topics/supervision-and-examination/responsible-innovation/comments/recommendations-
decisions-for-implementing-a-responsible-innovation-framework.pdf.
37 For more on the FDIC’s Tech Lab, see https://www.fdic.gov/fditech/.
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and soundness of insured depository institutions, promote competition, increase economic
inclusion, support risk management, and facilitate efficient resolution of failed institutions.
Consumer Protection Agencies: Approach to Fintech The mandate for the consumer protection agencies—CFPB and FTC—is largely to ensure that
consumers are unharmed by the practices of businesses under their jurisdiction while maintaining
a competitive marketplace. Within the context of fintech, there are tradeoffs between these
objectives. For instance, encouraging firms to offer new kinds of consumer-friendly financial
services can help create a competitive market, but the new products also can create the potential
for unforeseen risks to consumers.
Similar to the banking regulators, the CFPB and FTC issue and promulgate regulations on issues
pertinent to fintech,38 such as payments and data security, and both agencies have created
outreach offices. The consumer protection agencies, however, tend to use enforcement actions as
tools to manage the effects of fintech on the financial system to a greater extent than banking
regulators. This partly is because the consumer protection agencies are responsible for
implementing and enforcing consumer protection laws for many nonbank financial companies—
unlike the banking regulators, which generally do not have enforcement authorities for nonbank
financial companies.39
The consumer protection agencies use enforcement actions to balance their mandates with respect
to fintechs in two additional ways:
protect consumers by levying enforcement actions against firms that violate
consumer protection laws, and
promote market competition and facilitate innovations that benefit consumers by
creating safe harbors for firms from enforcement actions in order to encourage
firms to develop new technologies and solve challenges facing consumers.
Whereas the CFPB has a broad range of regulatory authorities relevant to fintech, the FTC is
somewhat limited to enforcement actions for many fintech activities, as it has some investigative
authority but no supervisory authorities. Examples of these approaches are explored in more
detail below.
38 Section 18 of the Federal Trade Commission Act (15 U.S.C. §57) authorizes the FTC to prescribe “rules which
define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce.” In
addition, various other statutes authorize FTC rulemaking; such rulemaking is typically promulgated in accordance
with 5 U.S.C. §553. One of the more significant rules the FTC promulgates with respect to financial institutions is the
Safeguards Rule, which implements the data security provisions of the Gramm-Leach-Bliley Act (GLBA; P.L. 106-
102). For more on the GLBA and the Safeguards Rule, see CRS Insight IN11199, Big Data in Financial Services:
Privacy and Security Regulation, by Andrew P. Scott.
39 Enforcement authority of the banking regulators is largely a function of the charter the bank has: the FDIC has
certain enforcement authorities for state-chartered nonmember banks; the Federal Reserve has certain enforcement
authorities for state-chartered member banks; and the OCC has certain enforcement authorities for nationally chartered
banks. This is also part of the policy discussion around the special purpose national bank charters for fintechs, which
would subject chartered fintechs to OCC enforcement authority as well as general regulation and supervision.
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Lending and Fintech
Dating back to at least 1989, with the debut of a general-purpose credit score called FICO,40 automation has
increasingly become a part of the underwriting process for consumer loans.41 In general, automation in
underwriting relies on algorithms—precoded sets of instructions and calculations executed by a computer—to
determine whether to extend credit to an applicant and under what terms. In contrast, human underwriting relies
on a person to use their knowledge, experience, and judgement (perhaps informed by a numerical credit score) to
make assessments.
More recently, with the proliferation of internet access and data availability, some new lenders—often referred to
as marketplace lenders or fintech lenders—rely entirely or almost entirely on online platforms and algorithmic
underwriting.42 In addition, the abundance of alternative data about prospective borrowers now available to
lenders—either publicly accessible or accessed with the borrower’s permission—means lenders can incorporate
additional information beyond traditional data provided in credit reports and credit scores into assessments of
whether a particular borrower is a credit risk.43
A general issue underlying many of the policy questions involving fintech in lending is whether the current
regulatory framework appropriately fosters these technologies’ potential benefits while mitigating the risks they
may present. Additional policy questions arise in cases where banks and nonbanks have partnered with each other
to issue loans. Another area of debate is how consumers will be affected by fintech in lending.
Notes: See CRS Report R46332, Fintech: Overview of Innovative Financial Technology and Selected Policy Issues,
coordinated by David W. Perkins. For more on consumer credit reporting and credit scores, see CRS Report
R44125, Consumer Credit Reporting, Credit Bureaus, Credit Scoring, and Related Policy Issues, by Cheryl R. Cooper and
Darryl E. Getter.
Enforcement Actions to Ensure Consumer Protection
One way consumer protection agencies implement their legal authorities is through enforcement
actions: agencies can take a number of actions to levy penalties against or stop firms that violate
law or regulation. The FTC’s enforcement actions include a number of orders that pertain to
fintech firms.
FTC Fintech Enforcement Actions
The FTC enforces federal consumer protection laws that prevent fraud, deception, and unfair
business practices, as well as federal antitrust laws that prohibit anticompetitive mergers and
other business practices that could lead to higher prices, fewer choices, or less innovation.
Companies that violate laws under FTC jurisdiction are liable for civil penalties for each
violation. Over the past decade, the FTC has brought over 20 cases against telecommunications
firms, money service businesses, prepaid card companies, and technology firms, among others,
with operations relevant to fintech and in violation of FTC competition and fairness rules.44 Table
2 describes the outcomes of selected recent FTC fintech-related enforcement actions.
40 FICO is a trademarked term that was originally an acronym that stood for Fair, Isaac, and Company—the company
that developed the score.
41 Matthew Adam Bruckner, “The Promise and Perils of Algorithmic Lenders’ Use of Big Data,” Chicago-Kent Law
Review, vol. 93, no. 1 (March 16, 2018), pp. 11-15.
42 U.S. Department of the Treasury, Opportunities and Challenges in Online Marketplace Lending, May 10, 2016, p. 5,
at https://www.treasury.gov/connect/blog/Documents/
Opportunities_and_Challenges_in_Online_Marketplace_Lending_white_paper.pdf.
43 U.S. Government Accountability Office (GAO), Financial Technology: Agencies Should Provide Clarification on
Lenders’ Use of Alternative Data, GAO-19-111, December 2018, p. 33, at https://www.gao.gov/assets/700/696149.pdf.
44 For example, see FTC, “FTC Returns Nearly $20 Million in Additional Refunds to T-Mobile Customers,” press
release, February 1, 2017, at https://www.ftc.gov/news-events/press-releases/2017/02/ftc-returns-nearly-20-million-
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Table 2. Examples of FTC Fintech Enforcement Actions
Issue Area Company Industry Result
Unauthorized
Charges
Apple Inc. Technology Jan. 2014: $32.5 million settlement for charging
for unauthorized in-app purchases made by
children without parental consent
Google, Inc. Technology Sept. 2014: $19 million settlement for unlawfully
billing parents for children’s unauthorized in-app
charges
Amazon.com, Inc. Online retail May 2017: $70 million in refunds for
unauthorized charges made to accounts by
children without parental consent
Fraudulent
Money
Transfers
Western Union Money services Nov. 2017: $586 million settlement to refund
customers scammed while sending money
MoneyGram
International, Inc.
Money services Nov. 2018: $125 million settlement for failing to
take required measures to prevent fraudulent
money transfers
Allied Wallet Payment
processor
May 2019: $110 million settlement for
processing fraudulent transactions to
consumers’ accounts
Unfair and
Deceptive Acts
BF Labs, Inc. Cryptocurrency Feb. 2016: Company shutdown in 2014 by
courts; operators prohibited from taking up-
front payment for Bitcoin machines
SoFi Lending Corp. Student loan
refinancing
Oct. 2018: Company agreed to stop misleading
consumers about potential savings
Avant, LLC Online lending Apr. 2019: $3.85 million settlement for
unauthorized charges on consumers’ accounts
and unlawfully requiring automatic payments
Source: Federal Trade Commission (FTC), “Cases Tagged with FinTech,” at https://www.ftc.gov/enforcement/
cases-proceedings/terms/13309.
Sandboxes and No-Action Letters to Promote Innovation
Consumer protection agencies occasionally create policies or programs that temporarily shield
firms from enforcement actions if they meet certain conditions. In the past few years, the CFPB
has built upon its No-Action Letter (NAL) policy, which provides some assurances that if a
company offers a product or service in a specific way, the agency will withhold enforcement
actions for that particular activity. With respect to fintech, the CFPB has identified the NAL
policy as a way to encourage firms to produce products and disclosures that may benefit
additional-refunds-t-mobile; FTC, “FTC Alerts Consumers: If Scammers Had You Pay Them Via Western Union, You
Can Now File a Claim to Get Money Back,” press release, November 13, 2017, at https://www.ftc.gov/news-events/
press-releases/2017/11/ftc-alerts-consumers-if-scammers-had-you-pay-them-western-union; FTC, “MoneyGram
Agrees to Pay $125 Million to Settle Allegations that the Company Violated the FTC’s 2009 Order and Breached a
2012 DOJ Deferred Prosecution Agreement,” press release, November 8, 2018, at https://www.ftc.gov/news-events/
press-releases/2018/11/moneygram-agrees-pay-125-million-settle-allegations-company; FTC, “FTC Gives Final
Approval to Settlement with PayPal Related to Allegations Involving its Venmo Peer-to-Peer Payment Service,” press
release, May 24, 2018, at https://www.ftc.gov/news-events/press-releases/2018/05/ftc-gives-final-approval-settlement-
paypal-related-allegations; and FTC, “NetSpend Settles FTC Charges,” press release, March 31, 2017, at
https://www.ftc.gov/news-events/press-releases/2017/03/netspend-settles-ftc-charges.
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consumers. Consumer protection agencies also promote innovation through programs such as
sandboxes or greenhouses, which can allow firms to trial new ideas and products while being
subject to a subset of the existing regulatory framework or while being granted safe harbor from
certain enforcement actions (see “Regulatory Sandboxes”).
CFPB No-Action Letter Policy
In 2016, the CFPB introduced its NAL policy to withhold enforcement actions against qualifying
consumer-friendly innovations and to help inform the CFPB on new products and services being
offered.45 Although the CFPB anticipated limited participation in this original NAL policy, it
announced its first NAL in 2017 to a company that used alternative data and machine learning in
making credit underwriting and pricing decisions.46 To encourage more robust participation, the
CFPB revised its NAL policy in 2019, amending the application and review process and
reportedly strengthening its commitment to provide safe harbor to qualifying firms.47
CFPB Compliance Assistance and Revised Trial Disclosure Sandbox Policies
The CFPB created sandbox programs to encourage certain firms to test consumer financial
services by granting the firms temporary safeguards from liability and enforcement actions. In
addition to creating the NAL policy, the CFPB created the Compliance Assistance Sandbox
(CAS) policy to enable some firms to test certain innovative products by providing the firms with
temporary safe harbor from liability under certain statutes.48 The CFPB expects participation in
the CAS policy to be time-limited, typically two years, with extensions available in specific
circumstances. In addition, Dodd-Frank allows the CFPB to provide trials for companies to test
new types of disclosures—with safeguards from certain liabilities and on a basis that is limited in
time and scope—to make them more effective for consumers. The CFPB first released a Trial
Disclosure Policy (TDP) in 2013 and updated it in 2019 to encourage more robust participation.49
Outreach, Coordination, and Research Programs
Similar to the banking regulators, the CFPB has an office that serves as a point of contact for
industry and other stakeholders. The CFPB also created a network to facilitate policy
coordination pertaining to fintech among the federal and state financial regulators. The FTC, to
support its investigation authorities, has done research and outreach to try to better understand the
ways fintech may impact consumer protection and market competition. These programs are
briefly explained below, and additional information regarding these programs can be found in
Appendix C.
CFPB Office of Innovation
In 2012, the CFPB created Project Catalyst to encourage “consumer-friendly innovation and
entrepreneurship in markets for consumer financial products and services” by communicating and
45 Consumer Financial Protection Bureau (CFPB), “Policy on No-Action Letters; Information Collection,” 81 Federal
Register 8686, February 22, 2016.
46 The letter can be found at https://files.consumerfinance.gov/f/documents/201709_cfpb_upstart-no-action-letter.pdf.
47 CFPB, “Policy on No-Action Letters,” 84 Federal Register 48229, September 13, 2019.
48 CFPB, “Policy on the Compliance Assistance Sandbox,” 84 Federal Register 48246, September 13, 2019.
49 CFPB, “Policy To Encourage Trial Disclosure Programs,” 84 Federal Register 48260, September 13, 2019.
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engaging with industry innovators.50 Through Project Catalyst, the CFPB studied issues
surrounding access to credit, safeguarding financial records, cash flow management, student loan
refinancing, mortgage servicing platforms, credit reporting, and peer-to-peer money transfers.51
The CFPB also held office hours, provided technical assistance, and offered an earlier version of
the above-mentioned TDP and NAL policy programs—before the new Office of Innovation was
created—designed to encourage firms to produce consumer-friendly innovations by safeguarding
those products from CFPB enforcement actions.
In 2018, the CFPB rebranded Project Catalyst, introducing a suite of policies and programs to
centralize policies pertaining to consumer-focused innovation through a newly established Office
of Innovation.52 The office provides a single point of contact for firms looking to participate in
the revised NAL policy and sandbox policy programs, explained above.
CFPB American Consumer Financial Innovation Network
In September 2019, the CFPB launched the American Consumer Financial Innovation Network
(ACFIN) of state regulators. The CFPB created ACFIN to enhance coordination among federal
and state regulators and to facilitate financial innovation as regulators develop new regulations
and apply existing ones.53 The network is open to all state and federal financial regulators, as well
as state attorneys general.54
FTC Investigation of Fintech Issues
The FTC develops policy and research tools through hearings, reports, workshops, and
conferences to support its investigation authorities. Since 2012, the FTC has hosted numerous
events and developed several reports on mobile payments, big data, marketplace lending,
cryptocurrency scams, and small business financing.55 For example, the FTC has hosted several
forums on fintech issues, including one on marketplace lending in June 2016,56 crowdfunding and
peer-to-peer payments in October 2016,57 and artificial intelligence and blockchain technology in
50 CFPB, “CFPB Launches Project Catalyst to Spur Consumer-Friendly Innovation,” press release, November 14,
2012, at https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-launches-
project-catalyst-to-spur-consumer-friendly-innovation/.
51 CFPB, “CFPB Releases First-Ever Project Catalyst Innovation Highlights Report,” press release, October 24, 2016,
at https://www.consumerfinance.gov/about-us/newsroom/cfpb-releases-first-ever-project-catalyst-innovation-
highlights-report/.
52 CFPB, “Bureau of Consumer Financial Protection Announces Director of the Office of Innovation,” press release,
July 18, 2018, at https://www.consumerfinance.gov/about-us/newsroom/bureau-consumer-financial-protection-
announces-director-office-innovation/.
53 CFPB, “CFPB and State Regulators Launch American Consumer Financial Innovation Network,” press release,
September 10, 2019, at https://www.consumerfinance.gov/about-us/newsroom/bureau-state-regulators-launch-
american-consumer-financial-innovation-network/.
54 CFPB, “American Consumer Financial Innovation Network Charter as of October 15, 2019,” at
https://files.consumerfinance.gov/f/documents/201910_cfpb_ACFIN-charter.pdf.
55 For examples, see FTC, “Public Events Tagged with FinTech,” accessed January 23, 2020, at https://www.ftc.gov/
news-events/events-calendar/terms/13309; FTC, “Reports Tagged with FinTech,” accessed January 23, 2020, at
https://www.ftc.gov/policy/reports/terms/13309.
56 FTC, “FTC Announces Agenda for June 9 FinTech Forum On Marketplace Lending,” press release, May 26, 2016,
at https://www.ftc.gov/news-events/press-releases/2016/05/ftc-announces-agenda-june-9-fintech-forum-marketplace-
lending.
57 FTC, “FTC to Host FinTech Forum on Crowdfunding and Peer-to-Peer Payments on Oct. 26,” press release, August
3, 2016, at https://www.ftc.gov/news-events/press-releases/2016/08/ftc-host-fintech-forum-crowdfunding-peer-peer-
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March 2017.58 In 2018, the FTC hosted an event on cryptocurrency scams for consumer groups,
law enforcement, researchers, and the private sector as part of its consumer protection work.59
Securities Regulators: Approach to Fintech60 The securities regulators—the SEC and the CFTC—are focused on any securities-related
activities, including those of fintech companies.61 Examples would include a fintech company
raising capital by issuing equity through an initial coin offering or a firm creating a new
technology for derivatives contracts. Given their mandate, the securities regulators have used a
range of regulatory tools, largely focused on clarifying whether and how the existing regulatory
framework applies to new types of technologies, including the following:
writing rules and guidance to clarify how existing rules apply to new types of
approaches to securities;
issuing enforcement actions against any fintech firms that may violate the
securities laws under their jurisdiction; and
setting up fintech outreach offices to serve as points of contact for stakeholders.
Examples of these regulatory approaches are provided below.
payments-oct-26.
58 FTC, “FTC Announces Agenda for March 9 FinTech Forum on Artificial Intelligence and Blockchain Technology,”
press release, February 27, 2017, at https://www.ftc.gov/news-events/press-releases/2017/02/ftc-announces-agenda-
march-9-fintech-forum-artificial. A blockchain is a digital ledger that allows parties to transact without the use of a
central authority as a trusted intermediary. For more on blockchain, see CRS Report R45116, Blockchain: Background
and Policy Issues, by Chris Jaikaran.
59 FTC, “Decrypting Cryptocurrency Scams,” June 25, 2018, at https://www.ftc.gov/news-events/events-calendar/2018/
06/decrypting-cryptocurrency-scams.
60 Additional information on the securities regulators and fintech can found at CRS In Focus IF11195, Financial
Innovation: Reducing Fintech Regulatory Uncertainty, by David W. Perkins, Cheryl R. Cooper, and Eva Su; and CRS
Report R46332, Fintech: Overview of Innovative Financial Technology and Selected Policy Issues, coordinated by
David W. Perkins.
61 For more on the SEC and its activities, see CRS In Focus IF10032, Introduction to Financial Services: The Securities
and Exchange Commission (SEC), by Gary Shorter; and CRS In Focus IF11256, SEC Securities Disclosure:
Background and Policy Issues, by Eva Su.
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Capital Formation, Digital Assets, and Robo-Advisors
Financial innovation in capital markets has generated new forms of fundraising for firms, including crowdfunding and
initial coin offerings (ICOs), options not previously overseen by the SEC. Crowdfunding involves raising funds by
soliciting investment or contributions from a large number of individuals, generally through the internet.62 ICOs
raise funds by selling digital coins or tokens—generally created and transferred using blockchain technology—to
investors. The coins or tokens allow investors to access, make purchases from, or otherwise participate in the
issuing company’s platform, software, or other project.63 In cases where crowdfunding and ICOs meet the legal
definition of a securities offering, they are subject to securities law and SEC regulation.64
Digital assets, often referred to as crypto assets, among other terminology, are digital representations of value
made possible by cryptography and blockchain; they include the coins and tokens offered through ICOs. Within
the past two years, this new asset class has experienced rapid growth, high volatility, maturing practices, and
regulatory scrutiny. About 300 platforms are offering digital asset trading and referring to themselves as
“exchanges” as of December 2019. However, many such platforms, if they are regulated at all, are registered as
money-transmission services (MTSs) instead of SEC-regulated national securities exchanges.
Asset management companies pool money from various individual or institutional investor clients and invest the
funds on their behalf for financial returns.65 The SEC is the asset management industry’s primary regulator. The
asset management industry is increasingly using fintech to conduct investment research, trading, and enhance its
client services. A prominent example is the proliferation of robo-advisor services, in which automated programs
give investment advice to clients. There is also potential to apply artificial intelligence and machine learning within
asset management, both in robo-advisory services and other functions, such as risk management and regulatory
compliance and trading and portfolio management.66
Notes: See CRS Report R46332, Fintech: Overview of Innovative Financial Technology and Selected Policy Issues,
coordinated by David W. Perkins. For more on SEC regulation and digital assets, see CRS Report R46208, Digital
Assets and SEC Regulation, by Eva Su.
Application of Existing Securities Rules to Fintech
The SEC recently published guidance and rules on new capital-raising measures known as Initial
Coin Offerings (ICOs) and crowdfunding, as well as on issues regarding automated investment
advice (“robo advisors”).67 Both the SEC and CFTC have used their broad enforcement
authorities to issue enforcement actions against digital asset practices that violated rules under
their respective jurisdictions.68 Further, the SEC used its NAL policy (similar to that used by the
CFPB, discussed above) to provide safe harbor to digital asset related companies. These
initiatives are summarized below.
62 SEC, “Updated Investor Bulletin: Crowdfunding for Investors,” May 10, 2017, at https://www.sec.gov/oiea/investor-
alerts-bulletins/ib_crowdfunding-.html (hereinafter SEC, “Updated Investor Bulletin: Crowdfunding for Investors”).
63 SEC, “Investor Bulletin: Initial Coin Offerings,” July 25, 2017, at https://www.investor.gov/additional-resources/
news-alerts/alerts-bulletins/investor-bulletin-initial-coin-offerings (hereinafter SEC, “Investor Bulletin: Initial Coin
Offerings”).
64 SEC, “Updated Investor Bulletin: Crowdfunding for Investors”; and SEC, “Investor Bulletin: Initial Coin Offerings.”
65 For more on asset management, see CRS Report R45957, Capital Markets: Asset Management and Related Policy
Issues, by Eva Su.
66 See Financial Stability Board, Artificial Intelligence and Machine Learning in Financial Services, November 1,
2017, at http://www.fsb.org/2017/11/artificial-intelligence-and-machine-learning-in-financial-service; and John
Schindler, Associate Director, Federal Reserve Board, presentation slides: Artificial Intelligence and Machine Learning
in Finance, September 29, 2017, at https://philadelphiafed.org/-/media/bank-resources/supervision-and-regulation/
events/2017/fintech/resources/24_slides_schindler.pdf?la=en.
67 For more on Initial Coin Offerings, see CRS In Focus IF11004, Financial Innovation: Digital Assets and Initial Coin
Offerings, by Eva Su.
68 For more on digital assets, see CRS Report R46208, Digital Assets and SEC Regulation, by Eva Su.
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SEC Guidance for Initial Coin Offerings
Firms that issue cryptocurrencies may consider an ICO to raise capital by issuing digital assets to
investors.69 In 2019, the SEC published a framework to build on 2018 guidance for companies to
understand whether their ICOs qualify as securities and are subject to SEC regulation.70 The
process of issuing an ICO is similar to a public companies’ Initial Public Offering—a well-
regulated and commonplace way to raise capital in equity markets for newly public companies—
in that both aim to raise funding, but confusion may exist among investors and industry over
whether digital assets are treated the same way under SEC regulation.
SEC Crowdfunding Final Rule
The Jumpstart Our Business Startups Act (JOBS Act; P.L. 112-106) contains provisions that
establish a regulatory structure for startups and small businesses to raise capital through issuing
securities using internet-based crowdfunding.71 Effective May 2016, the SEC adopted a rule to
implement these provisions, thereby governing the offer and sale of such securities and providing
a framework for regulating certain registered funding portals and other intermediaries.72
SEC Guidance for Automated Investment Advice
The SEC has issued guidance for robo advisors, which provide automated investment advice.73
The staff guidance serves to inform registered and other investment advisers on how to comply
with the relevant securities statutes.74 Compliance requires firms or sole practitioners
compensated for advising others about securities investments to register with the SEC and
conform to regulations designed to protect investors.75
SEC and CFTC Digital Asset Enforcement Actions and No-Action Letters
The SEC has broad enforcement authorities, granting it the ability to suspend business practices
through injunctions and to bring administrative proceedings, such as cease and desist orders. The
SEC manages a robust enforcement action program across several industries and has issued 48
such actions against digital asset-related companies since 2013.76 Similarly, the CFTC issues
enforcement actions to enforce derivatives laws; since 2018, it has issued more than 20
enforcement actions against firms related to Bitcoin and other cryptocurrency fraud schemes.77
69 An initial coin offering (ICO) is a method of raising capital through the creation and sale of digital assets. A typical
ICO transaction involves the issuer selling new digital “coins”—crypto tokens—to individual or institutional investors.
For more, see CRS In Focus IF11004, Financial Innovation: Digital Assets and Initial Coin Offerings, by Eva Su.
70 SEC, “Framework for ‘Investment Contract’ Analysis of Digital Assets,” at https://www.sec.gov/corpfin/framework-
investment-contract-analysis-digital-assets.
71 The SEC’s final rule defines crowdfunding as “a relatively new and evolving method of using the Internet to raise
capital to support a wide range of ideas and ventures. An entity or individual raising funds through crowdfunding
typically seeks small individual contributions from a large number of people.”
72 SEC, “Crowdfunding,” 80 Federal Register 71387, November 16, 2015.
73 SEC, “Guidance Update,” February 2017, at https://www.sec.gov/investment/im-guidance-2017-02.pdf.
74 15 U.S.C. §80b-3.
75 The SEC regulations pertaining to the Investment Advisers Act can be found in 17 C.F.R. §275.
76 The SEC’s cyber enforcement actions can be viewed at https://www.sec.gov/spotlight/cybersecurity-enforcement-
actions.
77 For the press releases associated with the Commodity Futures Trading Commission’s (CFTC’s) enforcement actions,
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In addition to its enforcement authority, the SEC grants NALs in some instances to provide relief
from the SEC taking an enforcement action against a company. The SEC provided three such
letters to digital asset companies in 2019.
Outreach Offices for Stakeholders
SEC Strategic Hub for Innovation and Financial Technology
In 2018, the SEC created the Strategic Hub for Innovation and Financial Technology (FinHub) to
serve as a resource for public engagement on fintech issues, such as distributed ledger technology,
digital assets, automated investment advice, digital marketplace financing, and artificial
intelligence/machine learning. FinHub, developed from numerous SEC internal working groups,
also is designed to make the SEC’s fintech work more accessible to industry and serve as a
platform to inform the SEC’s understanding of new financial technologies.78
LabCFTC
LabCFTC is the focal point of the CFTC’s efforts around financial innovation and is designed to
make the CFTC more accessible to innovators.79 LabCFTC also serves as a platform to inform the
CFTC’s understanding of new technologies, providing information for CFTC staff that may
influence policy development. LabCFTC seeks to promote responsible innovation to improve the
quality, resiliency, and competitiveness of markets. It also aims to accelerate CFTC engagement
with new technologies that may enable the CFTC to carry out its mission responsibilities more
effectively and efficiently. There are two main components to LabCFTC: (1) GuidePoint,80 which
creates a dedicated point of contact for stakeholders, and (2) CFTC 2.0,81 which serves as a beta
testing environment for new technologies.
see https://www.cftc.gov/PressRoom/PressReleases?field_press_release_types_value=Enforcement&year=all.
78 For more, see SEC, “FinHub,” at https://www.sec.gov/finhub.
79 For more on LabCFTC, see CFTC, “LabCFTC Overview,” accessed January 27, 2020, at https://www.cftc.gov/
LabCFTC/Overview/index.htm.
80 An overview of GuidePoint is available at https://www.cftc.gov/LabCFTC/GuidePoint/index.htm.
81 An overview of CFTC 2.0 is available at https://www.cftc.gov/LabCFTC/CFTC2_0/index.htm.
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Appendix A. Summary of Financial Regulator
Mandates
Banking Regulators
Banks and credit unions serve a vital role in the economy. Thus, they are subject to a strong
regulatory framework that requires institutions operate in a safe and sound manner. Depository
institutions are routinely examined to ensure their business lines are healthy and to make sure
they comply with various laws. These regulators also write and provide guidance on rules for
depository institutions to implement their legal authorities over certain business practices.
Although the mandates and authorities for each agency are a bit different, the agencies all serve as
primary federal regulators for some kind of depository institution. The type of depository
institution depends on whether a bank is chartered at the federal or state level and whether it is a
member of the Federal Reserve System. (See Table A-1.)
Table A-1. Depository Charters and Regulators
Institution Chartering Authority Primary Federal
Regulator Deposit Insurance
National banks Office of the Comptroller
of the Currency (OCC) OCC FDIC
State member banks State banking agency Federal Reserve FDIC
State nonmember banks State banking agency Federal Deposit Insurance
Corporation (FDIC) FDIC
Federal credit unions National Credit Union
Administration (NCUA) NCUA NCUA
Source: CRS analysis of regulator websites.
Federal Reserve System82
The Federal Reserve Act of 1913 (P.L. 63-43) established the Federal Reserve as the central bank
of the United States, comprising the Board of Governors and 12 Federal Reserve Banks. The
Board generally sets policy, which is carried out by the Reserve Banks. In addition to its
responsibility as the central bank to set monetary policy, the Federal Reserve is also responsible
for supervising and regulating state banks that are members of the system and all bank-holding
companies. The Federal Reserve also has an important role in operating the payments and
settlement system.
Table D-2 summarizes the Federal Reserve’s notable recent activities in the payments system.
Office of the Comptroller of the Currency83
The Office of the Comptroller of the Currency (OCC) was established in 1863 as a bureau of the
U.S. Department of the Treasury. The OCC is the primary federal regulator for nearly 1,200
national banks, federal savings associations, and federal branches and agencies of foreign banks
82 The Federal Reserve’s website can be found at https://www.federalreserve.gov/.
83 The OCC’s website can be found at https://www.occ.gov/.
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operating in the United States. The OCC grants national bank charters, which allow the charter
holder to legally operate as a bank.
Federal Deposit Insurance Corporation84
The Federal Deposit Insurance Corporation (FDIC), established by the Banking Act of 1933 (P.L.
73-66) and largely shaped into its modern form by the Federal Deposit Insurance Act of 1950
(P.L. 81-797), insures the deposits of banks and serves as the primary federal regulator for state-
chartered banks and thrifts that are not members of the Federal Reserve. The FDIC manages the
Deposit Insurance Fund, which provides the funds necessary to insure deposits and to resolve
failed banks. The FDIC provides deposit insurance for deposits at all U.S. banks, both national
and state, but most of the banks the FDIC supervises are smaller institutions, known as
community banks.
National Credit Union Administration85
In 1970, Congress amended the Federal Credit Union Act to establish the National Credit Union
Administration (NCUA) as the regulator for the federal credit union system (P.L. 91-206). The
NCUA supervises and insures deposit shares at federal credit unions and is responsible for
resolving failing institutions.
Consumer Protection Agencies
Consumer protection laws and regulations are mainly within the jurisdiction of two agencies. The
Consumer Financial Protection Bureau (CFPB) regulates certain financial firms for unfair,
deceptive, and abusive acts and practices, as well as for compliance with several consumer
protection laws. In addition, many firms—both financial and nonfinancial—are subject to
oversight by the Federal Trade Commission (FTC), which regulates firms for competition and
fairness.
Consumer Financial Protection Bureau86
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank; P.L. 111-203)
established the CFPB to implement and enforce federal consumer financial law while ensuring
that markets for consumer financial services and products are fair, transparent, and competitive.
Dodd-Frank consolidated the consumer protection authorities promulgated by other agencies and
provided CFPB new powers to issue rules declaring certain acts or practices associated with
consumer financial products and services to be unlawful because they are unfair, deceptive, or
abusive.
The CFPB generally has regulatory authority over providers of an array of consumer financial
products and services, including deposit taking, mortgages, credit cards and other extensions of
credit, loan servicing, collection of consumer reporting data, and debt collection associated with
consumer financial products. The scope of its supervisory and enforcement authority varies
depending on an institution’s size and whether it holds a bank charter.
84 The FDIC’s website can be found at https://www.fdic.gov/.
85 The NCUA’s website can be found at https://www.ncua.gov/.
86 The CFPB’s website can be found at https://www.consumerfinance.gov/.
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Federal Trade Commission87
Congress passed the Federal Trade Commission Act in 1914 to create the FTC and give it legal
authority to protect consumers and promote competition. Specifically, the FTC looks to prevent
unfair or deceptive acts or practices and to seek monetary redress or other relief for conduct
deemed injurious to consumers. Generally, the FTC has broad investigation, rulemaking, and
enforcement authorities that enable it to accomplish its mission.
Securities Regulators
Many companies issue stocks and bonds, trade derivatives, and offer other products collectively
called securities. Securities are generally regulated by the Securities and Exchange Commission
(SEC) and the Commodity Futures Trading Commission (CFTC). (The CFTC has specific
responsibility for derivatives markets.) The securities regulators promulgate rules and provide
oversight over the institutions in their jurisdiction. They also conduct enforcement actions to
investigate and prosecute violations of relevant regulations.
Securities and Exchange Commission88
Congress passed the Securities Exchange Act of 1934 (P.L. 73-291) to establish the SEC and
restore confidence in the securities markets after the stock market crash of 1929. The SEC is an
independent agency that has broad authority over much of the securities industry in order to
protect investors, promote fair and efficient markets, and facilitate capital formation.
Commodity Futures Trading Commission89
The CFTC was created in 1974 by the Commodity Futures Trading Commission Act (P.L. 93-
463) to address the expansion of commodities beyond agriculture. Prior to this law, commodities
generally were regulated at the Commodity Exchange Authority, a former agency within the U.S.
Department of Agriculture. The CFTC regulates the U.S. derivatives markets, including futures,
options, and swaps, and implements the Commodity Exchange Act (CEA; P.L. 74-675). Similar
to the SEC, the CFTC has rulemaking and enforcement authorities for a range of issues, but the
CFTC’s authorities focus on derivatives markets derived from the CEA.
87 The FTC’s website can be found at https://www.ftc.gov/.
88 The SEC’s website can be found at https://www.sec.gov/.
89 The CFTC’s website can be found at https://www.cftc.gov/.
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Appendix B. Financial Innovation Offices
Table B-1. Financial Innovation Offices
Agency Innovation Office Summary
Federal Reserve Bank of New York Fintech Advisory Group Coordinates views and perspectives
on emerging issues related to
financial technologies, the
application and market impact of
these technologies, and the
potential impact on the Federal
Reserve
Office of the Comptroller of the
Currency
Office of Innovation Provides a central point of contact
to address requests and information
related to innovation and to
implement its financial innovation
framework
Federal Deposit Insurance
Corporation (FDIC)
FDIC Tech Lab (FDiTech) Engages with financial and
technology companies to identify
opportunities to improve the safety
and soundness of insured
depository institutions; promotes
competition, increases economic
inclusion, supports risk
management, and facilitates efficient
resolution of failed institutions
Consumer Financial Protection
Bureau
Office of Innovation Promotes innovation, competition,
and consumer access within
financial services through regulatory
relief, engagement with the financial
technology (fintech) community,
and collaboration with other
regulators
Securities and Exchange
Commission
FinHub Serves as a resource for public engagement on fintech issues, such
as distributed ledger technology,
digital assets, automated investment
advice, digital marketplace financing,
and artificial intelligence/machine
learning
Commodity Futures Trading
Commission (CFTC)
LabCFTC Promotes responsible innovation to
improve the quality, resiliency, and
competitiveness of markets, and to
accelerate CFTC engagement with
new technologies that may enable
the CFTC to carry out its mission
responsibilities more effectively and
efficiently
Financial Crimes Enforcement
Network (FinCEN)
FinCEN Innovation Initiative Fosters a better understanding of
the opportunities and challenges of
innovation in the financial services
sector related to the Bank Secrecy
Act and Anti-Money Laundering
Source: Congressional Research Service summaries of agency website information.
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Appendix C. Select Regulatory Fintech Initiatives
Federal Reserve System Innovation Programs
Table C-1. Federal Reserve System Financial Innovation Programs
Federal Reserve
Bank/Board
Name of
Program/Event Date Description
Fintech Programs
Federal Reserve Bank of
Atlantaa
Center for Financial
Innovation and Stability
2009 Supports research and hosts
events to explore issues
around financial innovation
Federal Reserve Bank of
Bostonb
Mobile Payments Industry
Workgroup
2010 Convenes experts in mobile
payments to discuss barriers
and opportunities in retail
mobile and digital payments
Federal Reserve Bank of
San Franciscoc
Navigate 2017 Provides consultative
resources for industry to discuss concerns around
financial innovation and
regulation
Federal Reserve Bank of
New York (FRBNY)d
New York Federal
Reserve Bank Fintech
Advisory Group
2019 Establishes a fintech point of
contact for industry and
consumer organizations
Fintech Events
Federal Reserve Board of
Governorse
Financial Innovations
Roundtable
Annually, since 2000 Explores issues related to
financial innovation, such as
economic mobility, access to
capital, community
development, and small
business lending
Board of Governors Financial Innovation: Online Lending to
Households and Small
Business
2016 Convened academics, industry, and policymakers to
discuss innovations in online
lending and regulatory policy
Federal Reserve Bank of
Boston
Fintech, Financial
Inclusion—and the
Potential to Transform
Financial Services
2018 Convened industry,
nonprofits, and the public
sector to explore the
challenges and opportunities
for fintech and financial
inclusion
Federal Reserve Bank of
Philadelphia
Fintech and the New
Financial Landscape
2018 Discussed policy solutions for
the use of alternative data
sources, big data, and
complex artificial intelligence
and machine learning
algorithms
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Federal Reserve
Bank/Board
Name of
Program/Event Date Description
FRBNY New York Fed Research
Conference on Fintech
2019 Convened academics,
policymakers, and industry
leaders to discuss fintech in
credit markets, the role of
blockchain and tokens in
payments systems, and the
use of machine learning for
evaluating regulation
Source: CRS summary of Federal Reserve Board and Bank websites.
Notes:
a. Federal Reserve Bank of Atlanta, “Center for Financial Innovation and Stability,” at
https://www.frbatlanta.org/cenfis.aspx.
b. Federal Reserve Bank of Boston, “Mobile Payments Industry Workgroup,” at https://www.bostonfed.org/
publications/mobile-payments-industry-workgroup.aspx.
c. Federal Reserve Bank of San Francisco, “Navigate,” at https://www.frbsf.org/banking/fintech/.
d. Federal Reserve Bank of New York, “Fintech Advisory Group Charter,” April 1, 2019, at
https://www.newyorkfed.org/medialibrary/media/aboutthefed/pdf/FinTech-Charter.pdf.
e. The Financial Innovations Roundtable is hosted at the University of New Hampshire. For more information
on past events, see https://carsey.unh.edu/cif/convenings/financial-innovation-roundtable.
OCC Responsible Innovation Framework
The OCC’s Office of Innovation implements its Responsible Innovation framework in a number
of ways that are described and summarized in Table C-2. For instance, the agency established an
outreach and technical assistance program to establish a dialogue with banks, fintech companies,
consumer groups, trade associations, and regulators. It engages in outreach through a variety of
channels. Over the past two years, for example, the Office of Innovation hosted office hours in
five different cities for over 125 stakeholders, approximately 250 additional meetings and calls
with stakeholders, and over 100 conferences and other events.90 The office provides technical
assistance to help banks and fintech companies understand OCC expectations, relevant laws,
regulations, and guidance, such as the agency’s third-party risk management guidance.91 The
Office of Innovation also conducts research and develops content, including white papers,
webinars, and collaborations with other OCC business units to deliver in-house training,
including on payment technologies.92
The Office of Innovation convenes representatives from various OCC business units to develop a
coordinated strategy on particular topics, and it forms working groups to consider particular
issues to coordinate and facilitate discussion between stakeholders and the OCC. It also
endeavors to reduce regulatory uncertainty and inconsistency, provides assistance to agencies
90 Testimony of Beth Knickerbocker, OCC Chief Innovation Officer, before the Task Force on Financial Technology of
the House Committee on Financial Services, June 25, 2019, at https://financialservices.house.gov/uploadedfiles/hhrg-
116-ba00-wstate-knickerbockerb-20190625.pdf.
91 OCC, Bulletin 2013-29, “Third-Party Relationships: Risk Management Guidance,” October 30, 2013, at
https://www.occ.gov/news-issuances/bulletins/2013/bulletin-2013-29.html; OCC, Bulletin 2017-21, “Third-Party
Relationships: Frequently Ask Questions to Supplement OCC Bulletin 2013-29,” June 7, 2017, at https://www.occ.gov/
news-issuances/bulletins/2017/bulletin-2017-21.html.
92 Testimony of Beth Knickerbocker, OCC Chief Innovation Officer, before the Task Force on Financial Technology of
the House Committee on Financial Services, June 25, 2019, at https://financialservices.house.gov/uploadedfiles/hhrg-
116-ba00-wstate-knickerbockerb-20190625.pdf.
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interested in establishing innovation offices, and helps the OCC share information and
communicate with other U.S. agencies on emerging trends and ways to improve its innovation
initiatives.
The OCC participates in various regulatory forums, such as the Financial Stability Board’s
Financial Innovation Network, and it serves as co-chair of the Task Force on Financial
Technology, established by the Basel Committee on Banking Supervision (BCBS). Furthermore,
the OCC collaborates on cybersecurity issues domestically and internationally through the
Federal Financial Institutions Examination Council, the Financial and Banking Information
Infrastructure Committee, and the BCBS.
Table C-2. OCC Responsible Innovation Framework
Elements of Framework Summary
Outreach and Technical Assistance Establishes ongoing dialogue with banks, nonbanks
(including financial technology (fintech)
companies), and other stakeholders
Provides technical assistance to banks and
nonbanks
Promotes awareness and understanding of OCC
positions and expectations
Awareness and Training Fosters OCC staff awareness of responsible
innovation and emerging trends
Improves training and enhances the skills of
examiners and other OCC staff
Develops processes to build and leverage OCC
experience and expertise
Coordination and Facilitation Implements a process to streamline and coordinate innovation-related decisions to ensure
transparent and timely responses to inquiries
Creates a process for OCC participation in bank-
run pilots
Research Assesses the landscape and trends in financial
innovation
Uses research and ongoing stakeholder dialogue to
inform OCC policy, supervision, and analysis
Interagency Collaboration Uses existing communication channels to share
information and collaborate with domestic and
international regulators
Source: Office of the Comptroller of the Currency (OCC) Responsible Innovation Website, at
https://www.occ.treas.gov/topics/supervision-and-examination/responsible-innovation/index-responsible-
innovation.html.
Consumer Financial Protection Bureau Financial Innovation
Programs
The CFPB’s recent efforts pertaining directly to fintech are summarized in Table C-3 below.
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Table C-3. CFPB Fintech Policies and Programs
Type of Activity Name Date Description
Coordination Office of Innovation July 2018 Revamps “Project Catalyst” and provides a
point of contact for industry interested in
participating in the No-Action Letter (NAL)
program or the Compliance Assistance
Sandbox (CAS) policy
Coordination American Consumer
Financial Innovation
Network
Sept. 2019 Helps federal and state officials coordinate
efforts to facilitate innovation and further
objectives of consumer access, competition,
and financial inclusion
Policy Guidance NAL Policy
(84 Federal Register 48229)
Sept. 2019 Modifies 2016 NAL policy to provide
companies safe harbor from supervisory
and enforcement actions against qualifying
consumer-friendly innovations
Policy Guidance CAS Policy
(84 Federal Register 48246)
Sept. 2019 Provides safe harbor from certain supervisory and enforcement actions for
testing qualified products while sharing data
with the CFPB
Policy Guidance Trial Disclosure Sandbox
Policy
(84 Federal Register 48260)
Sept. 2019 Provides safe harbor from certain
supervisory and enforcement actions for
qualified disclosure trials while sharing data
with the CFPB
Sources: Consumer Financial Protection Bureau (CFPB); Federal Register.
Financial Crimes Enforcement Network
The Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of the
Treasury charged with administering U.S. anti-money laundering (AML) and combating the
financing of terrorism (CFT) laws, most notably the Bank Secrecy Act (BSA; P.L. 91-508).93 In
2018, FinCEN, along with the Federal Reserve, the FDIC, the NCUA, and the OCC, announced
an effort to encourage banks and credit unions to take innovative approaches to combating money
laundering, terrorist financing, and other illicit financial threats by enhancing the effectiveness
and efficiency of BSA/AML compliance programs.94
FinCEN Innovation Initiative. FinCEN launched an Innovation Initiative to address the
challenges and opportunities of BSA and AML-related innovation in the financial services sector.
FinCEN’s Innovation Initiative includes the FinCEN Innovation Hours Program and regulatory
relief programs to facilitate innovation around AML/CFT compliance. Additionally, FinCEN
93 For more on anti-money laundering (AML) and the Financial Crimes Enforcement Network (FinCEN), see CRS In
Focus IF11064, Introduction to Financial Services: Anti-Money Laundering Regulation, by Rena S. Miller and Liana
W. Rosen; CRS Report R44776, Anti-Money Laundering: An Overview for Congress, by Rena S. Miller and Liana W.
Rosen; and CRS Recorded Event WRE00287, Anti-Money Laundering: The Bank Secrecy Act and Current Issues, by
Rena S. Miller et al.
94 FinCEN, “Treasury’s FinCEN and Federal Banking Agencies Issue Joint Statement Encouraging Innovative Industry
Approaches to AML Compliance,” press release, December 3, 2018, at https://www.fincen.gov/news/news-releases/
treasurys-fincen-and-federal-banking-agencies-issue-joint-statement-encouraging.
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suggested that it will consider incorporating testing programs, similar to sandboxes, and “Tech
Sprints” to facilitate the development of innovative solutions to AML/CFT challenges.95
Innovation Hours Program. The Innovation Hours Program is the most recent addition to the
FinCEN Innovation Initiative. FinCEN intends to host financial institutions, technology
providers, and other firms involved in financial services to discuss their interests in innovation
around AML/CFT compliance.96
95 FinCEN, “FinCEN Innovation Questions and Answers,” at https://www.fincen.gov/resources/fincens-innovation-
hours-program/faq.
96 FinCEN, “FinCEN’s Innovation Initiative: Implementation of FinCEN Innovation Hours; Invitation To Request
Innovation Hours Meeting,” 84 Federal Register 25120, May 30, 2019.
Fintech: Overview of Financial Regulators and Recent Policy Approaches
Congressional Research Service 30
Appendix D. Payments Regulation and Programs Consumers generally have shifted toward electronic payments such as debit and credit cards.
Since 2001, the Federal Reserve has been studying consumer trends in payment activities on a
triennial basis. In 2019, the CFPB issued a rule to grant protections to prepaid cards in a similar
fashion to debit and credit cards—this reflects the shift in consumer preference toward electronic
payments. However, regulatory actions around electronic payments may create adverse
conditions for some consumers who rely on cash. Balancing the interests of a faster, efficient
payment system with one that works for different types of consumers is a challenge currently
facing the Federal Reserve and CFPB. Table D-1 shows a number of these rules, which can
impact fintech companies that offer services or support payments operations through partnerships
at banks.
Table D-1. Payments Regulations Implemented by Financial Regulators
Agency Regulation Relevant Law Summary
Consumer Financial
Protection Bureau (CFPB)
Regulation E Electronic Funds Transfer Act
(P.L. 95-630)
Mandates consumer
disclosures for electronic
(i.e., debit) transactions,
limits liabilities for
unauthorized transactions,
creates an error resolution
mechanism
CFPB Regulation Z Truth in Lending Act (P.L. 90-
321)
Creates disclosure
requirements, including APR
and finance charges for
open-end credit, such as
credit cards
Federal Reserve Regulation CC Expedited Funds Availability Act
(P.L. 100-86)
Requires banks to make
funds from cash deposits,
electronic payments, and
certain money orders and
checks available the next
banking day after deposit;
and the first $200 of other
deposits to be made
available the next banking
day
Federal Reserve Regulation II Durbin Amendment to Dodd-
Frank Wall Street Reform and
Consumer Protection Act (P.L.
111-203)
Limits debit interchange fees
to 21 cents, plus a factor of
5 basis points and the value
of the transaction
CFPB Prepaid Rule Electronic Funds Transfer Act
and Truth in Lending Act
Creates protections for
prepaid account holders that
are similar to debit and
credit accounts, such as
disclosures, limits on
liabilities for unauthorized transactions, and error
resolution procedures
Source: CRS analysis of cited laws and regulations.
Fintech: Overview of Financial Regulators and Recent Policy Approaches
Congressional Research Service 31
The Costs and Benefits of Electronic Payments
As consumers shifted away from checks and cash to electronic payments, policymakers took interest in the cost
of these payment systems. Consumers have several options to make electronic noncash transactions. If electronic
methods of payment significantly displace cash as a commonly accepted form of payment, that evolution could
have a number of positive and negative outcomes. Reducing cash usage could generate benefits, such as reducing
the costs associated with the production, transportation, and protection of cash, but it could marginalize people
with limited access to the financial system.
Although consumers tend to prefer using debit cards and credit cards, cash maintains an important role in retail
payments and person-to-person transfers, especially for smaller transactions and lower-income households.
Further, the debit card payment network is run by only a few parties, which charge interchange fees for each
electronic debit transaction. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L.
111-203), the Federal Reserve issued a final rule in 2011 implementing the provisions of the Durbin Amendment
under Regulation II, which established a cap on the fees that network members can charge.
Notes: For more on the policy discussion around cash and its alternatives, see CRS Report R45716, The Potential
Decline of Cash Usage and Related Implications, by David W. Perkins. For more on the Federal Reserve’s 2011 final
rule, see Federal Reserve, “Federal Reserve issues a final rule establishing standards for debit card interchange fees
and prohibiting network exclusivity arrangements and routing restrictions,” press release, June 29, 2011, at
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20110629a.htm.
As the Federal Reserve contemplates the design of its proposed faster payments system, it has
numerous long-standing payments groups working on fintech and related issues. Many of these
groups focus on the payments market. An overview of the Federal Reserve’s payments groups is
provided in Table D-2 to show the scope of work of the agency and its Reserve Banks.
Table D-2. Federal Reserve Payments Programs
Federal Reserve Bank/Board of
Governors (Board) Program Name Description
Board Board of Governors Payments
System Policy Advisory Committee
Provides a mechanism for
coordinating Federal Reserve
System work and advising the
Board on policy and strategic
matters involving domestic and
international payments and
settlements issues
Board Faster Payments Task Force Establishes a forum for over 300
industry and consumer stakeholders
to discuss and evaluate alternative
approaches to implementing a faster
payments system
Board Secure Payments Task Force Provides a forum for stakeholders to advise the Federal Reserve on
payment security matters
Atlanta Retail Payments Risk Forum Works with financial institutions
and industry participants,
regulators, and law enforcement
officials to research issues and
sponsor dialogue to help mitigate
risks associated with paper, plastic,
and digital payments
Atlanta PeachPay Payments Advisory Group Provides a forum for companies to
share information and discuss
regulatory and policy issues that
may affect the payments industry
Fintech: Overview of Financial Regulators and Recent Policy Approaches
Congressional Research Service 32
Federal Reserve Bank/Board of
Governors (Board) Program Name Description
Boston Consumer Payments Research
Center
Provides data and analysis for
Federal Reserve System
researchers, analysts, and
policymakers, as well as industry
leaders and academics—the
center’s data program transferred
to the Atlanta Reserve Bank
Atlanta/Boston Mobile Payments Industry
Workgroup
Convenes experts in mobile
payments to discuss barriers and
opportunities in mobile and digital
payments
Chicago Payments Policy Group Provides in-depth research and
policy analysis on general purpose
payment trends in the United States
and abroad
Kansas City Banking and Payments Research Analyzes domestic and international
payments systems and the banking
industry, including supervisory and
regulatory concerns, lending issues,
and risks to financial institutions
Minneapolis Payment, Standards, and Outreach
Group
Works with national and
international organizations, industry
groups, and associations to develop
standards to make accepting
payments safe and efficient
New York Payments Systems Provides a wide range of payment
services for financial institutions and
the U.S. government and helps
formulate and execute policies for
the oversight of U.S. and
international payment systems;
fosters innovation in payments
systems and conducts research on
topical payment issues
Philadelphia Consumer Finance Institute Produces research on credit
markets and payments systems;
sponsors opportunities for scholars,
the financial industry, and the public
sector to share insights on
household finances, the financial
system, and the economy
Richmond Payments Studies Group Provides analysis and insights into
emerging payment technologies,
specifically consumer-to-business
payments; develops and shares best
practices to influence policy and
publishes payments research
Sources: Federal Reserve Board and Federal Reserve Bank websites.
Fintech: Overview of Financial Regulators and Recent Policy Approaches
Congressional Research Service 33
Appendix E. CRS Fintech Products
Cybersecurity
CRS Report R44429, Financial Services and Cybersecurity: The Federal Role, by M. Maureen
Murphy and Andrew P. Scott.
CRS Report R45631, Data Protection Law: An Overview, by Stephen P. Mulligan, Wilson C.
Freeman, and Chris D. Linebaugh.
CRS In Focus IF10559, Cybersecurity: An Introduction, by Chris Jaikaran.
Lending
CRS Report R44614, Marketplace Lending: Fintech in Consumer and Small-Business Lending,
by David W. Perkins.
CRS Report R45726, Federal Preemption in the Dual Banking System: An Overview and Issues
for the 116th Congress, by Jay B. Sykes.
Payments
CRS Report R45927, U.S. Payment System Policy Issues: Faster Payments and Innovation, by
Cheryl R. Cooper, Marc Labonte, and David W. Perkins.
CRS Report R45716, The Potential Decline of Cash Usage and Related Implications, by David
W. Perkins.
Banks and Third-Party Vendor Relationships
CRS In Focus IF10935, Technology Service Providers for Banks, by Darryl E. Getter.
Cryptocurrency and Blockchain-Based Payment Systems
CRS Report R45427, Cryptocurrency: The Economics of Money and Selected Policy Issues, by
David W. Perkins.
CRS Report R45116, Blockchain: Background and Policy Issues, by Chris Jaikaran.
CRS Report R45664, Virtual Currencies and Money Laundering: Legal Background,
Enforcement Actions, and Legislative Proposals, by Jay B. Sykes and Nicole Vanatko.
CRS In Focus IF10824, Financial Innovation: “Cryptocurrencies,” by David W. Perkins.
Digital Assets and Capital Formation
CRS Report R46208, Digital Assets and SEC Regulation, by Eva Su.
CRS Report R45221, Capital Markets, Securities Offerings, and Related Policy Issues, by Eva
Su.
CRS Report R45301, Securities Regulation and Initial Coin Offerings: A Legal Primer, by Jay B.
Sykes.
CRS In Focus IF11004, Financial Innovation: Digital Assets and Initial Coin Offerings, by Eva
Su.
Fintech: Overview of Financial Regulators and Recent Policy Approaches
Congressional Research Service R46333 · VERSION 2 · NEW 34
High-Frequency Securities and Derivatives Trading
CRS Report R44443, High Frequency Trading: Overview of Recent Developments, by Rena S.
Miller and Gary Shorter.
CRS Report R43608, High-Frequency Trading: Background, Concerns, and Regulatory
Developments, by Gary Shorter and Rena S. Miller.
Regulatory Approaches and Issues for Congress
CRS In Focus IF11195, Financial Innovation: Reducing Fintech Regulatory Uncertainty, by
David W. Perkins, Cheryl R. Cooper, and Eva Su.
CRS Report R46332, Fintech: Overview of Innovative Financial Technology and Selected Policy
Issues, coordinated by David W. Perkins.
Author Information
Andrew P. Scott
Analyst in Financial Economics
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